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CP St. Louis Casino, LLC v. Casino Queen

February 15, 2008


The opinion of the court was delivered by: J. Phil Gilbert District Judge


This matter comes before the Court on Defendant Casino Queen, Inc.'s Partial Motion to Dismiss (Doc. 25) to which Plaintiffs CP St. Louis Casino, LLC and CP St. Louis Casino Acquisition, LLC have responded (Doc. 28). Also before the Court is Plaintiffs's Motion to Voluntarily Dismiss Count III of the Amended Complaint (Doc. 29). For the following reasons, the Court GRANTS Plaintiffs's Motion (Doc. 29) and DENIES Defendant's Motion (Doc. 25).


I. Facts

For purposes of this motion, the Court accepts the following as true. In late 2005, Plaintiffs, CP St. Louis Casino, LLC and CP St. Louis Casino Acquisition, LLC,*fn1 began negotiations with Defendant, Casino Queen, to obtain ownership and control of the Casino Queen for an aggregate purchase price of $200 million. In April 2006, the parties entered into a Merger Agreement (the Agreement) which established the terms and conditions of the transfer.

Any such transfer would require the consent of certain governmental agencies, and St. Louis Casino would have to obtain a gaming licence.

A provision of the Agreement required that Casino Queen certify that no event had occurred which might place its gaming permits and licences in peril. Another provision of the Agreement required Casino Queen to certify that it was not conducting its business in violation of gaming laws and regulations and that, to its knowledge, "its directors, officers, key employees and persons performing management functions similar to officers and partners" were complying with gaming laws and regulations. In another provision of the Agreement, Casino Queen represented to St. Louis Casino that its business was not being conducted in violation of any law, including gaming laws, and that it had "not received a notice of any investigation or review by any Governmental Entity with respect to [it] or the Casino Queen property that is pending. . . no investigation or review is threatened, nor has any Governmental Entity indicated any intention to conduct the same." Further, Casino Queen promised to promptly notify St. Louis Casino should any of its representations later be rendered untrue.

Both parties also agreed to promptly notify the other in the event that either reasonably believed that governmental approval or licencing would be denied or materially delayed. And both sides promised to use "best efforts" to obtain from "Governmental Entities" any required licences, permits, or consents.

As per a clause in the Agreement regarding the transferability of stock, Casino Queen notified St. Louis Casino that Gerard Kenny, a stockholder and/or director of Casino Queen, had pledged his shares to certain other stockholders and/or directors. Casino Queen disclosed that "the validity of the pledge is an issue currently in litigation." What Casino Queen did not disclose, however, was that the stock pledge was being investigated by the Illinois Gaming Board (the Board). Furthermore, Casino Queen did not disclose that Gerard Kenny was also being investigated by the Board for alleged ties to organized crime. Casino Queen became aware of the Board's investigations into Gerard Kenny and the proposed stock pledge sometime before November 6, 2006. In January 2007, the Board ordered Gerard Kenny to economically dissociate himself from Casino Queen. In the meantime, St. Louis Casino found their application to obtain a gaming licence from the Board delayed, perhaps because of the undisclosed investigations into Gerard Kenny's activities.

An outside date of December 31, 2006 was set for closing on the acquisition. However, St. Louis Casino believed it would not receive the necessary governmental approval and licencing to consummate the deal by that date. Therefore, as per a clause in the Agreement, the parties agreed to extend the date for closing to February 28, 2007. In exchange for Casino Queen's agreement to push back the closing date, St. Louis Casino agreed to pay Casino Queen non-refundable deposit of five million dollars to be held in an escrow account. On or about February 26, 2007, St. Louis Casino, still waiting to obtain a gaming licence, asked for a further extension of the closing date. Casino Queen refused, and terminated the Agreement. Casino Queen kept the five million dollars in the escrow account, despite St. Louis Casino's demand that it return the money.

II. Procedural Posture

St. Louis Casino brought this action alleging breach of contract (Count I), fraud (Count II), violation of the Illinois Consumer Fraud and Deceptive Practices Act (Consumer Fraud Act) (Count III), violation of section 10(b) of the Securities and Exchange Act (SEA) and implementing rule 10b-5 (Count IV), and unjust enrichment (Count V).

The Court previously dismissed Count III because St. Louis Casino failed to allege that it was a consumer within the meaning of the Consumer Fraud Act or that Casino Queen's alleged fraud implicated consumer protection concerns. The Court also dismissed Count IV finding that St. Louis Casino failed to allege with sufficient specificity that Casino Queen's false statements were made with the requisite scienter. St. Louis Casino was granted leave to file an amended complaint, seeking to overcome these shortfalls. Casino Queen addresses the instant Motion to the Amended Complaint contending that St. Louis Casino has still failed to state a cause ...

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